Shares for Sunac China Holdings Ltd. dropped the most in the last sixteen months. The stock fell more than 10 percent which is the largest decline since 2015. While investors in Hong Kong were questioning the company’s decision to bet $2.2 billion on Chinese technology company LeEco, Sunac stock traded 6.2 percent.
Many who knew about the deal with LeEco seemed to question Chairman Sun Hongbin’s decision to invest $2.2 billion on the company. However, despite the skepticism, Sun stated that he anticipates “very rapid” development as the real estate industry continues to consolidated over the next 10 years. Sun even has plans for future investments to further the development of Sunac.
LeEco, owned by Jia Yueting, markets products like electric cars and smart TVs for other technology companies. Recently Jia confessed that releasing too many products as well as rapid expansion, hurt the cash flow of his company. Therefore, the deal struck between him and Sun gave great promise to the future. According to Bloomberg, Jia described the deal as “love at first site”. Sun as well seemed impressed with Jia’s flare for business.
Sunac reportedly made thirteen deals in the last years totaling $4.2 billion. These deals earned Sunac the reputation of being the most active real estate buyer in the last year. It was also called the third largest acquirer. Many of companies it obtained property from companies like Homelink Real Estate Brokerage in Beijing and legend Holdings.
The company’s investment in LeEco has the potential to boost the net earnings 162 percent near the end of the year. However, the fact that the investment in LeEco does not involve Sunac’s main business is another large factor for concern.
We have yet to see how this investment affects both companies going into the new year. However, analyst David Yang commented that “Overseas investors see this as relatively negative to Sunac.”
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